News

The Q1 2026 RICS UK Commercial Property Monitor indicates a more challenging market backdrop, driven primarily by deteriorating credit conditions and weaker capital value expectations. As the report notes, “the credit conditions indicator… fell sharply to -44% in Q1 from +9% in Q4” and capital value expectations have been revised down across all major sectors. Despite this, the occupier market remains relatively steady, with tenant demand broadly unchanged and rental growth for prime assets still in positive territory.

Office Sector

Occupier Market

Office occupier demand was broadly flat in Q1, recording a net balance of –4%, a marginal improvement on the previous quarter. Availability continues to edge upward, contributing to rising inducements, as “a net balance of +22% of respondents” reported increased incentives.

Prime office rental expectations remain positive, albeit slightly reduced. Twelve‑month growth is now forecast at +2.0% (down from +2.5% in Q4), reflecting ongoing preference for high‑quality, energy‑efficient space.

Investment Market

Capital value expectations for offices weakened materially. The all‑office net balance fell to –18% (from –5% previously), with prime office values now expected to rise only 0.7% over the next year, compared with 1.9% in Q4.

London continues to outperform the wider UK market. Prime London office rents are still expected to grow +2.5%, and capital values +0.9%, demonstrating relative resilience despite the broader downturn.

Retail Sector

Occupier Market

Retail remains the weakest of the three core sectors. Tenant demand posted a net balance of –19%, though this is a slight improvement on Q4 (–21%). Availability continues to rise, and incentives remain elevated.

Rental expectations for prime retail have slipped back into marginally negative territory, with twelve‑month projections at –0.5%. Secondary retail remains under more pronounced pressure, consistent with the long‑running structural challenges facing the sector.

Investment Market

Retail capital value expectations saw the sharpest downgrade of all mainstream sectors. The net balance fell to –30% (from –21% in Q4). Prime retail values are now expected to decline –0.7% over the next year, reversing the modest +0.5% growth previously anticipated.

Industrial Sector

Occupier Market

Industrial occupier demand was broadly unchanged, recording a net balance of –1%, compared with –2% in Q4. Availability continues to rise modestly, but the sector remains comparatively stable.

Prime industrial rental expectations remain the strongest among the traditional sectors. Twelve‑month growth is forecast at +2.1%, unchanged from Q4, reflecting continued demand for high‑quality logistics and distribution space.

Investment Market

Industrial capital value expectations have softened, with the net balance falling to –8% (from +9% in Q4). Prime industrial values are still expected to grow, but at a slower rate of +1.2% (down from +2.0%).

Overall Market Context

• The Occupier Sentiment Index remains subdued at –10, essentially unchanged from Q4.
• The proportion of respondents viewing the market as entering an early downturn has risen to 27%.
• Rising bond yields and geopolitical uncertainty—particularly the Middle East conflict—are cited as key drivers of weaker sentiment.
• Prime assets continue to outperform secondary stock across all sectors, reinforcing the ongoing bifurcation in the market.

As the report summarises, “twelve‑month rental growth projections were scaled back modestly… but remain in positive territory for the best‑quality space.”

The trends outlined in the RICS UK Commercial Property Market Survey are evident in the local property market, with occupier and investor demand continuing to exhibit caution, at a time when the economy remains relatively ‘flat’. Continued global political and economic uncertainty does not help growth prospects.

Town centre retail remain ‘challenging’, although other local / suburban centres are proving more resilient, possibly due to more plentiful free or cheap parking and a local populous. Offices have been adversely affected because of the pandemic, with a shift to ‘hybrid’ working resulting in a ‘flight to quality’ and moving the needle towards a ‘tenants’ market’ and prime property. A shortage of supply has perhaps reduced the deflationary pressure on rents though. Industrial demand continues to outstrip supply, with occupier and investor demand remaining positive. Prices (including rents) for good quality, well located ‘prime’ properties remain robust, but there is more caution when it comes to secondary and tertiary properties and locations.

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